1
================================================================================
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13402
INPUT/OUTPUT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2286646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12300 C. E. SELECMAN DR., STAFFORD, TEXAS 77477
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: [X] No: [ ]
At March 31, 2001 there were 51,112,454 shares of common stock, par value $0.01
per share, outstanding.
2
INPUT/OUTPUT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
PART I. Financial Information. PAGE
Item 1. Financial Statements.
Consolidated Balance Sheets
March 31, 2001 (unaudited) and December 31, 2000............ 3
Consolidated Statements of Operations
Three months ended March 31, 2001 (unaudited) and
March 31, 2000 (unaudited).................................. 4
Consolidated Statements of Cash Flows
Three months ended March 31, 2001 (unaudited) and
March 31, 2000 (unaudited).................................. 5
Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 17
PART II. Other Information.
Item 6. Exhibits and Reports on Form 8-K............................... 17
3
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
ASSETS ----------------- -----------------
Current assets:
Cash and cash equivalents........................................ $ 77,050 $ 92,376
Restricted cash.................................................. 1,372 1,115
Accounts receivable, net......................................... 44,136 30,920
Current portion notes receivable, net............................ 6,142 7,889
Inventories...................................................... 75,025 67,646
Deferred income tax asset........................................ 14,439 12,081
Prepaid expenses................................................. 702 2,217
----------------- -----------------
Total current assets................................... 218,866 214,244
Long-term notes receivable........................................ 5,950 6,150
Deferred income tax asset......................................... 40,413 42,771
Property, plant and equipment, net................................ 49,716 51,267
Goodwill, net..................................................... 46,762 47,098
Other assets, net................................................. 6,493 4,103
----------------- -----------------
Total assets........................................... $ 368,200 $ 365,633
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $ 11,391 $ 8,283
Current maturities of long-term debt........................... 2,493 1,207
Accrued expenses............................................... 20,612 23,388
----------------- -----------------
Total current liabilities.............................. 34,496 32,878
Long-term debt, net of current maturities......................... 8,498 7,077
Other long-term liabilities....................................... 250 275
Stockholders' equity:
Cumulative convertible preferred stock, $0.01 par value;
authorized 5,000,000 shares; issued and outstanding 55,000
shares at the end of both periods (liquidation value of $55
million)..................................................... 1 1
Common stock, $0.01 par value; authorized 100,000,000 shares;
outstanding 51,112,454 shares and 50,936,420 shares,
respectively................................................. 514 512
Additional paid-in capital..................................... 354,883 352,294
Retained deficit............................................... (20,622) (19,422)
Accumulated other comprehensive loss........................... (6,813) (5,353)
Treasury stock, at cost, 285,800 shares and 243,500 shares, (2,193) (1,737)
respectively.................................................
Unamortized restricted stock (814) (892)
compensation.......................
----------------- -----------------
Total stockholders' equity.................................. 324,956 325,403
----------------- -----------------
Total liabilities and stockholders' equity............. $ 368,200 $ 365,633
================= =================
See accompanying notes to unaudited consolidated financial statements.
3
4
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2001 2000
---------------- -----------------
Net sales.......................................... $ 42,409 $ 40,041
Cost of sales...................................... 25,699 41,602
---------------- -----------------
Gross profit (loss)....................... 16,710 (1,561)
---------------- -----------------
Operating expenses:
Research and development........................ 7,537 7,260
Marketing and sales............................. 3,319 2,684
General and administrative...................... 4,893 (2,737)
Amortization and impairment of intangibles...... 1,136 2,058
---------------- -----------------
Total operating expenses................. 16,885 9,265
---------------- -----------------
Loss from operations............................... (175) (10,826)
Interest expense................................... (207) (195)
Interest income.................................... 1,291 1,916
Other income (expense)............................. 307 (60)
---------------- -----------------
Income (loss) before income taxes.................. 1,216 (9,165)
Income tax expense................................. 1,026 124
---------------- -----------------
Net earnings (loss)................................ 190 (9,289)
Preferred dividend................................. 1,390 1,158
---------------- -----------------
Net loss applicable to common stock................ $ (1,200) $ (10,447)
================ =================
Basic loss per common share........................ $ (0.02) $ (0.21)
================ =================
Weighted average number of
common shares outstanding....................... 50,851,239 50,784,775
================ =================
Diluted loss per common share...................... $ (0.02) $ (0.21)
================ =================
Weighted average number of diluted
common shares outstanding....................... 50,851,239 50,784,775
================ =================
See accompanying notes to unaudited consolidated financial statements.
4
5
INPUT/OUTPUT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
-------------- --------------
Cash flows from operating activities:
Net earnings (loss).................................. $ 190 $ (9,289)
Adjustments to reconcile net earnings (loss) to net cash
used in operating activities:
Depreciation and amortization........................ 4,765 5,973
Amortization of restricted stock and other
stock compensation..................... 78 213
Impairment or loss (gain) on disposal of fixed assets (53) 4,064
Bad debt expense (collections) and loan losses....... (92) (8,197)
Inventory obsolescence............................... -- 8,700
Changes in assets and liabilities, net of above provisions:
Accounts and notes receivable........................ (9,384) (21,789)
Inventories.......................................... (5,101) 34,241
Accounts payable and accrued expenses................ 106 (7,248)
Income taxes payable/receivable...................... (2,057) 1,401
Other assets and liabilities......................... 1,582 (8,265)
-------------- --------------
Net cash used in operating activities......... (9,966) (196)
-------------- --------------
Cash flows from investing activities:
Purchase of property, plant and equipment............ (1,642) (771)
Cash paid for aquisitions............................ (4,151) --
-------------- --------------
Net cash used in investing activities.......... (5,793) (771)
-------------- --------------
Cash flows from financing activities:
Payments on long-term debt........................... (293) (271)
Payments of preferred dividends...................... (136) (137)
Proceeds from exercise of stock options.............. 966 (257)
Proceeds from issuance of common stock to Employee
Stock Purchase Plan................................. 371 --
Purchase of treasury stock........................... (456) 1,200
-------------- --------------
Net cash provided by financing activities...... 452 535
-------------- --------------
Effect of change in foreign currency exchange rates on
cash and cash equivalents......................... (19) (155)
-------------- --------------
Net decrease in cash and cash equivalents............ (15,326) (587)
Cash and cash equivalents at beginning of period..... 92,376 83,643
-------------- --------------
Cash and cash equivalents at end of period..... $ 77,050 $ 83,056
============== ==============
See accompanying notes to unaudited consolidated financial statements.
5
6
INPUT/OUTPUT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated balance sheet of Input/Output, Inc. and its subsidiaries
(collectively referred to as the "Company" or "I/O") at December 31, 2000 has
been derived from the Company's audited consolidated financial statements at
that date. The consolidated balance sheet at March 31, 2001, and the
consolidated statements of operations for the three months ended March 31, 2001
and 2000, and the consolidated statements of cash flows for the three months
ended March 31, 2001 and 2000, have been prepared by the Company without audit.
In the opinion of management, all adjustments, consisting of normal and
recurring adjustments, which are necessary to present fairly the consolidated
financial position, results of operations and cash flows have been made. The
results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the operating results for a full year or of future
operations.
These consolidated financial statements have been prepared using generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and applicable rules of Regulation S-X. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with accounting principles generally accepted in the
United States of America have been omitted. The accompanying consolidated
financial statements should be read in conjunction with the Company's Transition
Report on Form 10-K for the seven months ended December 31, 2000. Certain
amounts previously reported in the consolidated financial statements have been
reclassified to conform to the current year's presentation.
(2) SEGMENT INFORMATION
The Company evaluates and reviews results based on two segments, Land and
Marine, to allow for increased visibility and accountability of costs and more
focused customer service and product development. The Company measures segment
operating results based on earnings (loss) from operations. A summary of segment
information for the three months ended March 31, 2001 and 2000 is as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2001 2000
---------------- ---------------
Net sales:
Land.................................. $ 27,813 $ 17,652
Marine............................... 14,596 22,389
---------------- ---------------
Total................................ $ 42,409 $ 40,041
================ ===============
Depreciation and amortization:
Land................................. $ 2,285 $ 2,681
Marine............................... 913 1,760
Corporate............................ 1,567 1,532
---------------- ---------------
Total................................ $ 4,765 $ 5,973
================ ===============
Earnings (loss) from operations:
Land................................ $ 329 $ (4,559)
Marine.............................. 4,087 9,176
Corporate........................... (4,591) (15,443)
---------------- ---------------
Total............................... $ (175) $ (10,826)
================ ===============
MARCH 31, DECEMBER 31,
Total assets: 2001 2000
----------------- -----------------
Land............................... $ 135,550 $ 116,554
Marine............................. 74,702 69,897
Corporate.......................... 157,948 179,182
----------------- -----------------
Total.............................. $ 368,200 $ 365,633
================= =================
6
7
Intersegment sales are insignificant for all periods presented. Corporate
assets include all assets specifically related to corporate personnel and
operations, substantially all cash and cash equivalents, all facilities and
manufacturing machinery and equipment that are jointly utilized by segments and
all income taxes receivable and deferred income tax assets. Depreciation and
amortization expense is allocated to segments based upon use of the underlying
assets.
(3) INVENTORIES
A summary of inventories is as follows (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------------- ----------------
Raw materials...................................... $ 45,047 $ 39,988
Work-in-process.................................... 10,334 6,774
Finished goods..................................... 19,644 20,884
--------------- ----------------
$ 75,025 $ 67,646
=============== ================
(4) NOTES RECEIVABLE
The recorded investment in notes receivable for which an allowance for loan
loss has been recognized was $13.2 million at March 31, 2001. A summary of notes
receivable and allowance for loan loss is as follows (in thousands):
MARCH 31, DECEMBER 31,
2001 2000
--------------- ----------------
Notes receivable.............................. $ 22,899 $ 24,986
Allowance for loan loss.................... (10,807) (10,947)
--------------- ----------------
Notes receivable, net......................... 12,092 14,039
Current portion notes receivable, net......... 6,142 7,889
--------------- ----------------
Long-term notes receivable.................... $ 5,950 $ 6,150
=============== ================
The activity in the allowance for loan loss is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31
-----------------------------------
2001 2000
--------------- ----------------
Balance at beginning of period.................. $ 10,947 $ 30,006
Additions charged to costs and expenses......... 107 1,556
Recoveries reducing costs and expenses.......... (247) (12,197)
Write-downs charged against the allowance....... -- (5,168)
--------------- ----------------
Balance at end of period........................ $ 10,807 $ 14,197
=============== ================
(5) EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss)
applicable to common stock by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is determined on the
assumption that outstanding dilutive stock options and other common stock
equivalents have been exercised and the aggregate proceeds as defined were used
to reacquire common stock using the average price of such common stock for the
period.
7
8
The following table summarizes the calculation of weighted average number of
common shares and weighted average number of diluted common shares outstanding
for purposes of the computation of basic earnings (loss) per common share and
diluted earnings (loss) per common share (in thousands, except share and per
share amounts):
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2001 2000
--------------- ---------------
Net (loss) applicable to common stock......................... $ (1,200) $ (10,447)
=============== ===============
Weighted average number of common shares outstanding.......... 50,851,239 50,784,775
Stock options and other common stock equivalents.............. -- --
--------------- ---------------
Weighted average number of diluted common shares outstanding.. 50,851,239 50,784,775
=============== ===============
Basic loss per common share................................... $ (0.02) $ (0.21)
=============== ===============
Diluted loss per common share................................. $ (0.02) $ (0.21)
=============== ===============
At March 31, 2001 and 2000, 4,521,628 and 3,827,462 shares subject to stock
options were considered anti-dilutive and not included in the calculation of
diluted earnings (loss) per common share. In addition, the outstanding
convertible preferred stock has not been considered in the computation of
diluted loss per common share.
(6) LONG TERM DEBT
In August 1996, the Company obtained a $12.5 million, ten-year term loan
secured by certain of its land and buildings. The term loan bears interest at a
fixed rate of 7.875% per annum and is repayable in equal monthly installments of
principal and interest of $151,439. The total installment payments for principal
and interest in each of the next five years will be $1.8 million, with a balance
thereafter of $1.2 million. The term loan provides for penalties for pre-payment
prior to maturity.
In January 2001, in connection with the acquisition of Pelton Company, Inc.
("Pelton") (see Note 10), the Company entered into a $3 million two-year
unsecured promissory note payable to the former shareholder of Pelton, bearing
interest at 8.5% per year. Principal is payable in quarterly payments of $0.4
million plus interest, with final payment due in February 2003.
(7) COMPREHENSIVE EARNINGS (LOSS)
The Statement of Financial Accounting Standards ("SFAS") No. 130 Reporting
Comprehensive Income, establishes standards for reporting and presentation of
comprehensive earnings (loss) and its components. Comprehensive earnings (loss)
primarily consists of net earnings (loss) and foreign currency translation
adjustment. SFAS No. 130 does not significantly affect the financial position or
results of operations of the Company. The components of total comprehensive
earnings (loss) are as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2001 2000
---------------- ----------------
Net earnings (loss)......................... $ 190 $ (9,289)
Foreign currency translation adjustment..... (1,460) (453)
---------------- ----------------
Comprehensive Loss $ (1,270) $ (9,742)
================ ================
8
9
(8) STOCKHOLDERS' EQUITY
In July 2000, the Company announced that its Board of Directors had
authorized the repurchase of up to 1,000,000 shares of common stock in open
market and privately negotiated transactions, with purchases to be made from
time to time through May 31, 2001. Shares repurchased will be held as treasury
stock to be available for stock option and other equity compensation and
benefits plans. During the three months ended March 31, 2001 the Company
repurchased 42,300 shares under this program. As of March 31, 2001, a total of
53,300 shares had been repurchased under the program.
(9) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has been named in various
lawsuits or threatened actions. While the final resolution of these matters may
have an impact on its consolidated financial results for a particular reporting
period, the Company believes that the ultimate resolution of these matters will
not have a material adverse impact on its financial position, results of
operations or liquidity.
A significant part of the Company's marketing efforts are focused on areas
outside the United States. Foreign sales are subject to special risks inherent
in doing business outside of the United States, including the risk of war, civil
disturbances, exchange rate fluctuations, embargo and government activities, as
well as risks of compliance with U.S. and foreign laws, including tariff
regulations and import/export restrictions, which may disrupt markets and affect
operating results.
Demand for products from customers in developing countries is difficult to
predict and can fluctuate significantly from year to year. These changes in
demand result primarily from the instability of economies and governments in
certain developing countries, changes in internal laws and policies affecting
trade and investment, and the adoption of new technologies and purchasing
practices. These risks may adversely affect the future operating results and
financial position of the Company. In addition, sales to customers in developing
countries on extended terms can present heightened credit risks.
(10) ACQUISITIONS
On January 3, 2001, the Company acquired all of the outstanding capital
stock of Pelton for approximately $6 million cash and a $3 million two-year
unsecured promissory note. Pelton is based in Ponca City, Oklahoma and designs,
manufactures and sells seismic vibrator control systems, vibrator positioning
systems and explosive energy control systems.
The acquisition was accounted for by the purchase method, with the purchase
price allocated to the fair value of assets purchased and liabilities assumed.
The preliminary allocation of the purchase price as of March 31, 2001, including
related direct costs, for the acquisition of Pelton was as follows (in
thousands):
Fair values of assets and liabilities
Net current assets................................... $ 5,623
Property, plant and equipment........................ 373
Intangible assets.................................... 3,187
---------
Total allocated purchase price................... 9,183
Less non-cash consideration - note payable................ 3,000
Less cash of acquired business............................ 2,032
---------
Cash used for business acquisition, net of cash acquired.. $ 4,151
=========
The consolidated results of operations of the Company include the results of
Pelton from the date of acquisition. The revenues and net income of Pelton prior
to the acquisition dates were not material to the Company's consolidated results
of operations.
(11) SIGNIFICANT CHARGES AND RECOVERIES
Significant pre-tax charges of $4.5 million, net, were recorded during the
three months ending March 31, 2000 and included a charge of $8.7 million of
inventory charges (included in cost of sales) related to the Company's decision
to commercialize VectorSeis(TM) digital sensor products having higher technical
standards than the products that were previously produced. The Company had
decided to commercialize these earlier VectorSeis(TM) products which were since
proven not to be commercially feasible
9
10
based on data gathered from VectorSeis(TM) digital sensor surveys, the
anticipated longer-term market recovery for new seismic instrumentation and
given current and expected market conditions. Other charges were $4.2 million of
an inventory write-down in the Marine Division (included in cost of sales); $2.4
million of bad debt expense (included in general and administrative expense),
$1.3 million of charges related to the employee reduction in workforce worldwide
(included in general and administrative expense); and $0.7 million of charges
related to legal settlements (included in cost of sales -- $0.3 million, and in
general and administrative expense -- $0.4 million). These charges were offset
in part by $12.8 million of recoveries attributable to a more favorable than
anticipated resolution of a customer's bankruptcy settlement, consisting of a
$10.2 million reduction in allowance for loan loss (recorded as a reduction to
general and administrative expense) and a $2.6 million reversal of warranty
reserves based on this bankruptcy settlement (recorded as a reduction to cost of
sales).
No material special charges were recorded in the quarter ending March 31,
2001. In response to prevailing seismic industry conditions, the Company, during
2000, began concentrating on lowering its cost structure, consolidating product
offerings and reorganizing into a products-based operating structure. The
Company continues to evaluate additional restructuring and cost control
solutions with the goal of returning to profitability as quickly as practicable.
Implementing these solutions could result in additional charges against
earnings.
(12) CHANGE IN FISCAL YEAR
During 2000, the Company changed its fiscal year end from May 31 to a fiscal
year ending December 31 of each year. The Company filed a Transition Report on
Form 10-K for the transition period ended December 31, 2000. The Company
commenced reporting on a calendar year basis with the filing of this Form 10-Q
for the quarter ended March 31, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Net sales have traditionally been directly related to the level of worldwide
oil and gas exploration activity and the profitability and cash flows of oil and
gas companies and seismic contractors. These are affected by expectations
regarding the supply and demand for oil and natural gas, energy prices, and
discovery and development costs. However, the seismic industry has been
adversely affected by surplus seismic data, principally marine "spec" data, used
to generate exploration prospects. Influential factors may include, but are not
limited to, those described in Cautionary Statement for Purposes of
Forward-Looking Statements -- Continuation of Downturn in Seismic Services
Industry Will Adversely Affect Results of Operations and Financial Condition and
Risk From Significant Amount of Foreign Sales Could Adversely Affect Results of
Operations.
Results of operations and financial condition have been affected by
acquisitions of businesses and significant charges during certain prior periods,
which may affect the comparability of the financial information. The following
discussion and analysis of results of operations and financial condition should
be read in conjunction with the consolidated financial statements and the notes
thereto included elsewhere in this Form 10-Q and the Company's Transition Report
on Form 10-K for the seven months ended December 31, 2000.
SUMMARY REVIEW AND OUTLOOK
The seismic industry continues to show signs of a broadening recovery from
the depressed levels of activity over the past several years. Demand for the
Company's land products is expected to increase through 2001. During the first
quarter of 2001, the Company announced the release of its new land recording
system, the I/O IMAGE(TM) system, which features full integration of cable-based
and radio-based seismic recording under a single control interface. However,
continued equipment oversupply in the marine seismic fleets should result in
only a modest recovery in the marine seismic sector before the end of the year.
Total revenue growth for fiscal 2001 is anticipated to be 35% to 40% compared to
total revenues for calendar 2000. The Company believes that it will approach
profitable results of operations for the second quarter of fiscal 2001 and that
it will record profitable results overall for fiscal 2001.
The Company's key strategies involve optimizing the performance of its core
business, developing and commercializing new seismic imaging technology in the
marketplace, and expanding its business through acquisitions and alliances.
The Company is continuing to invest resources and seek improvements in
seismic data acquisition technology. A few of the goals the Company is seeking
to achieve during 2001 include commercializing its VectorSeis(TM) technology,
further development in land seismic ground electronics, and developing new
product offerings in hydrocarbon reservoir monitoring.
10
11
The Company finished production of the previously announced 1,500
VectorSeis(TM) stations in April 2001. The Company has completed five jobs with
the VectorSeis(TM) stations, four in Canada and one in the United States. The
Company is on track to make a determination this summer regarding full
commercialization of the VectorSeis(TM) platform in its commercial packaging.
The Company expects to begin beta testing a next generation land data
acquisition system by the end of 2001 to enable the Company to include a
lightweight land system in its product portfolio.
The Company also plans to create a new business unit for its MEMS
(micro-electromechanical systems) facility in Stafford, Texas during 2001 to
provide for the production of MEMS components for VectorSeis(TM) products and
also to seek additional applications and revenue sources for its MEMS capacity
and technology.
The Company does not intend to invest its resources into developing or
producing a solid marine streamer product as an alternative to its liquid-filled
streamers. See Cautionary Statement for Purposes of Forward-Looking Statements
- -- Pressure from Competitors Could Adversely Affect Results of Operations.
With regards to the proposed activities described above, no assurances can
be made that the Company will implement any of these potential actions, and if
so, whether any of them will prove successful or the degree of that success.
FISCAL YEAR CHANGE
During 2000, the Company changed its fiscal year end from May 31 to a fiscal
year ending December 31 of each year. The Company filed a Transition Report on
Form 10-K for the transition period ended December 31, 2000. The Company
commenced reporting on a calendar year basis with the filing of this Form 10-Q
for the quarter ended March 31, 2001.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
Net Sales: Net sales of $42.4 million for the three months ended March 31,
2001 increased $2.4 million, or 6%, compared to the corresponding period one
year prior. The increase is primarily due to increased demand for products
produced by the Land Division, offset by decreased net sales of the Marine
Division. Net sales of the Land Division increased $10.2 million, or 58%, as a
result of improving industry conditions and the acquisition of Pelton. Net sales
for the Marine Division decreased $7.8 million, or 35%, compared to the
corresponding period one year prior. The decrease in net sales of the Marine
Division is due to lessened industry demand attributable to continued equipment
oversupply in marine seismic fleets.
Cost of Sales: Cost of sales of $25.7 million for the three months ended
March 31, 2001 decreased $15.9 million, or 38%, compared to the corresponding
period one year prior. Cost of sales of the Land Division was $18.5 million and
cost of sales of the Marine Division was $7.2 million. Results for the three
months ended March 31, 2000 included $10.6 million, net, in significant charges
for inventory write-downs partially offset by favorable legal settlements.
Excluding the effect of these significant net charges, cost of sales decreased
$5.3 million, or 18%, compared to the corresponding period one year prior.
Gross Profit. Gross profits for the three months ended March 31, 2001
increased $18.3 million compared to the corresponding period one year prior.
Gross profit percentage for the three months ended March 31, 2001 was 39.4%.
Excluding the effect of significant charges, first quarter 2001 gross profits
increased $7.7 million compared to the corresponding period one year prior.
Excluding the effect of these significant charges, gross profit percentage for
the three months ended March 31, 2000 was 22.6%. A significant contribution to
the higher 2001 gross profit percentage was a sale of an ocean-bottom cable
system, which is a factor that is not expected to recur in the second quarter of
2001. Excluding the sale of the ocean bottom cable system, gross profit
percentage for the three months ended March 2001 was 36.7%.
Research and Development: Research and development expense of $7.5 million
for the three months ended March 31, 2001 increased $0.3 million, or 4%,
compared to the corresponding period one year prior. Research and development
expense has remained relatively constant due to VectorSeis(TM) development costs
partially offset by a significantly narrowed focus on a smaller number of
technology developments for land, marine and reservoir applications. All costs
for prototype parts unique to VectorSeis(TM) are being expensed in the period
incurred.
11
12
Marketing and Sales: Marketing and sales expense of $3.3 million for the
three months ended March 31, 2001 increased $0.7 million, or 25%, compared to
the corresponding period one year prior. The increase is primarily related to
increased net sales and higher gross profit percentage on current period net
sales, which has, in turn, led to higher commission costs.
General and Administrative: General and administrative expense of $4.9
million for the three months ended March 31, 2001 increased $7.6 million, or
279%, compared to the corresponding period one year prior. Results for the three
months ended March 31, 2000 included significant net recoveries of $6.1 million
due to favorable legal settlements, offset by bad debt expense, work-force
reductions and unfavorable legal settlements. Excluding the effect of these
significant net recoveries in 2000, general and administrative expense increased
$1.7 million in 2001. This increase in general and administrative expense is
partially attributable to increased compensation expense, reflecting estimated
accruals for profit based bonuses this year, and the inclusion of Pelton in the
current quarter.
Amortization and Impairment of Intangibles: Amortization and impairment of
intangibles of $1.1 million for the three months ended March 31, 2001 decreased
$0.9 million, or 45%, compared to the corresponding period one year prior. The
decrease is due to the impairment of $31.9 million of goodwill recorded during
the three months ended June 30, 2000.
Total Interest and Other Income: Total interest and other income of $1.6
million for the three months ended March 31, 2001 decreased $0.3 million, or
14%, compared to the corresponding period one year prior primarily as a result
of decreasing interest rates on lower cash balances.
Income Tax (Benefit) Expense: Income tax expense of $1.0 million for the
three months ended March 31, 2001 increased $0.9 million, compared to the
corresponding period one year prior. The increase in income tax expense is due
primarily to: (i) increased profitability of Company operations in Dutch and
English tax jurisdictions in 2001, and (ii) a lack of offsetting recognition for
a tax benefit from domestic net operating losses of the consolidated Company
operations in both periods. In assessing the realizability of its deferred
income tax assets, the Company considered whether it is more likely than not
that some portion or all of the deferred income tax assets will be realized. The
ultimate realization of deferred income tax assets is dependent upon the
generation of future taxable income during the periods in which those deferred
income tax assets become deductible. The Company considered the scheduled
reversal of deferred income tax liabilities and projected future taxable income
in making this assessment.
In order to fully realize the deferred income tax assets, the Company will
need to generate future taxable income of approximately $158 million over the
next 19-20 years. Although the Company has experienced significant losses in
recent fiscal years, taxable income for the years 1996 through 1998 aggregated
approximately $128 million. Regardless, the ultimate realization of the net
deferred tax assets, prior to the expiration of the net operating loss
carry-forward in the next 19-20 years, will require a return to levels of
profitability that existed prior to the Company's fiscal year ended May 31,
1999.
Preferred Stock Dividends: Preferred stock dividends for the three months
ended March 31, 2001 and 2000 are related to outstanding Series B and Series C
Preferred Stock. The dividends are recognized as a charge to retained earnings
at the rate of 8% per year, compounded quarterly (of which 7% is accounted for
as accrued dividends and 1% is paid as a quarterly cash dividend). The preferred
stock dividend charge for the three months ended March 31, 2001 was $1.4
million, compared to $1.2 million for the corresponding period one year prior.
Liquidity and Capital Resources
The Company has typically financed operations from internally generated cash
and funds from equity financings. Cash and cash equivalents were $77.0 million
at March 31, 2001, a decrease of $15.3 million, or 17%, compared to December 31,
2000. The decrease is due to negative cash flows from operating activities and
investing activities for the three months ended March 31, 2001. Net cash used in
operating activities was $10.0 million for the three months ended March 31,
2001, an increase of $9.8 million, compared to the corresponding period one year
prior. The changes in working capital items for the three months ended March 31,
2001 represented a $14.9 million use of cash, due primarily to increases in
receivables and inventories as a result of increased net sales and anticipated
higher sales levels in succeeding quarters. The various working capital accounts
can vary in amount substantially from period to period, depending upon levels of
sales, product mix sold, demand for products, percentages of cash versus credit
sales, collection rates, inventory levels, and general economic and industry
factors. Excluding changes in working capital items, operating cash flow was a
positive $4.9 million.
Net cash flow used in investing activities was $5.8 million for the three
months ended March 31, 2001, an increase of $5.0 million, or 651%, compared to
the corresponding period one year prior. The principal investing activities were
capital expenditure projects and
12
13
the purchase of all the capital stock of Pelton. Planned capital expenditures
for 2001 of approximately $8.0 million include the purchase of advanced
manufacturing machinery and additional equipment for the rental equipment fleet.
Cash flow provided by financing activities was a positive $0.5 million for
the three months ended March 31, 2001, which remained relatively constant
compared to the corresponding period one year prior. The Company believes the
combination of existing working capital, current cash on hand and access to
other financing sources will be adequate to meet anticipated capital and
liquidity requirements for the foreseeable future.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency, the Euro. The Company owns facilities and manufactures
components for systems in one member country. The transition period for the
introduction of the Euro is between January 1, 1999 and June 30, 2002. The
Company continues to address the issues involved with the introduction of the
Euro. The more important issues include: converting information technology
systems; reassessing currency risk; and processing tax and accounting records.
Based on progress to date in reviewing this matter, the Company believes that
the introduction of the Euro has not and will not have a significant impact on
its business affairs and its processing of business and accounting records.
CREDIT RISK
A continuation of weak demand for the services of certain customers of the
Company will further strain their revenues and cash resources, thereby resulting
in lower sales levels and a higher likelihood of defaults in their timely
payment of their obligations under credit sales arrangements. Increased levels
of payment defaults with respect to credit sales arrangements could have a
material adverse effect on the Company's results of operations.
The combined gross trade accounts receivable and trade notes receivable
balance as of March 31, 2001, from customers in Russia and other former Soviet
Union countries was approximately $9.1 million and was approximately $10.0
million from customers in Latin American countries. As of March 31, 2001 the
total allowance for doubtful accounts (foreign and US) was $1.6 million and the
allowance for loan losses was $10.8 million. During the three months ended March
31, 2001, there were $3.1 million of sales to customers in Russia and other
former Soviet Union countries (substantially all in the form of cash sales
backed by irrevocable letters of credit), $0.8 million of sales to customers in
Latin American countries and $2.1 million of sales to customers in China. All
terms of sale for these foreign receivables are denominated in US dollars.
Russia and certain Asian and Latin America countries have experienced economic
problems and uncertainties and devaluations of their currencies in recent years.
To the extent that economic conditions in the Former Soviet Union, Latin
America, China or elsewhere negatively affect future sales to customers in those
regions or the collectibility of existing receivables, future results of
operations, liquidity and financial condition may be adversely affected.
CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q
(including statements contained in Part I - Item 2. Management's Discussion and
Analysis of Results of Operations and Financial Condition), as well as other
written and oral statements made or incorporated by reference from time to time
by the Company and its representatives in other reports, filings with the
Securities and Exchange Commission, press releases, conferences, conference
calls, or otherwise, may be deemed to be forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 and are subject to
the "Safe Harbor" provisions of that section. This information includes, without
limitation, statements concerning future results of operation, future revenues,
future costs and expenses, future margins and write-downs and special charges
and savings and benefits therefrom; anticipated timing of commercialization of
and capabilities of products planned or under development, including lightweight
land seismic systems; products incorporating the Company's VectorSeis(TM)
technology; further applications and revenue sources for the Company's MEMS
technology and facility capacity; future demand for I/O products; anticipated
product releases and technological advances; the future mix of business and
future asset recoveries; the realization of deferred tax assets; the effects of
and expected benefits from acquisitions and strategic alliances; the effect of
changes in accounting standards on the results of operations and financial
condition; the effect of the Euro's introduction; the inherent unpredictability
of adversarial proceedings and other contingent liabilities; future capital
expenditures and I/O's future financial condition; future energy industry and
seismic services industry conditions; and world economic conditions, including
those in the Former Soviet Union, Latin America and Asian countries. These
statements are based on current expectations and involve a number of risks and
uncertainties, including those set forth below and elsewhere in this Quarterly
Report on Form 10-Q. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove correct.
13
14
When used in this report, the words "anticipate," "estimate," "expect,"
"may," "project" and similar expressions are intended to be among the statements
that identify forward-looking statements. Important factors which could affect
actual results and cause actual results to differ materially from those results
which might be projected, forecast, estimated or budgeted in such
forward-looking statements include, but are not limited to, the following:
Failure to Develop Products and Keep Pace with Technological Change Will
Adversely Affect Results of Operations. The markets for the Company's products
are characterized by rapidly changing technology and frequent product
introductions. Whether the Company can develop and produce successfully, on a
timely basis, new and enhanced products that embody new technology, meet
evolving industry standards and practices, and achieve levels of capability and
price that are acceptable to customers, will be significant factors in the
ability to compete in the future.
There can be no assurance that the Company will not encounter resource
constraints or technical or other difficulties that could delay introduction of
new products in the future. No assurances can be given as to whether any new
products incorporating the VectorSeis(TM) digital sensor (or any other product
introductions or enhancements) will be commercially feasible or accepted in the
marketplace by present or future customers. If the Company is unable, for
technological or other reasons, to develop competitive products in a timely
manner in response to changes in the seismic data acquisition industry or other
technological changes, business and operating results will be materially and
adversely affected. In addition, continuing development of new products
inherently carries the risk of inventory obsolescence with respect to older
products. Updates and upgrades in product offerings through newly introduced
products and product lines, whether internally developed or obtained through
acquisitions, carry with them the potential for customer concerns of product
reliability, which may have the effect of lessening customer demand for those
products.
Pressure from Competitors Could Adversely Affect Results of Operations. The
market for seismic data acquisition systems and seismic instrumentation is
highly competitive and is characterized by consolidation, as well as continual
and rapid changes in technology. Competitors for land and marine seismic
equipment include, among others, Fairfield Industries; Geo-X Systems, Limited;
JGI Incorporated; OYO Geospace Corporation; Bolt Technology Corporation;
Teledyne Brown Engineering, an affiliate of Allegheny Teledyne Company; Thomson
Marconi Sonar P/L; Geoscience Corp. and Societe d'etudes Recherches et
Construction Electroniques ("Sercel"), both affiliates of Compagnie General de
Geophysique (CGG). Unlike I/O, companies such as Sercel and Geoscience Corp.
possess the advantage of selling to an affiliated seismic contractor.
Competition in the industry is expected to intensify and could adversely
affect future results. Several competitors have greater name recognition, more
extensive engineering, manufacturing and marketing capabilities, and greater
financial, technological and personnel resources. In addition, certain companies
in the industry have expanded and improved their product lines or technologies
in recent years. Specifically, the recent introduction by one competitor of a
lightweight land seismic system has had an adverse effect on the Company's net
sales in recent periods. In addition, one of the Company's competitors has
introduced a marine solid streamer product, and the Company believes another
competitor is developing or has developed a similar product. Currently, the
Company does not have a competitive solid streamer product offering and does not
intend to develop or produce one. Consequently, the Company's net sales of
marine streamers have been, and will continue to be, adversely affected to the
extent customers prefer solid streamers over the Company's liquid filled
product. There can be no assurance that the Company will be able to compete
successfully in the future with existing or new competitors. Pressures from
competitors offering lower-priced products or products employing new
technologies could result in future price reductions and lower margins.
A continuation of the trend toward consolidation and concentrated buying
power in the oil field services industry will also have an adverse effect on the
demand for the Company's products and services.
Continuation of Downturn in Seismic Services Industry Will Adversely Affect
Results of Operations and Financial Condition. Demand for products is dependent
upon the level of worldwide oil and gas exploration and development activity and
the available inventory of seismic data used to generate exploration prospects.
This activity in turn is primarily dependent upon oil and gas prices, which have
been subject to wide fluctuation in recent years in response to changes in the
supply and demand for oil and natural gas, market uncertainty and a variety of
additional factors that are beyond the Company's control. Worldwide oil prices
declined beginning in October 1997 and remained at lower levels through February
1999. Despite the recovery in commodity prices since then, energy producers'
continuing concerns over the sustainability of higher prices for hydrocarbon
production resulted in lower exploration budgets by energy companies, which has
resulted in weak demand for seismic data acquisition equipment. Other factors
which have negatively impacted demand for products have been the weakened
financial condition of many customers, consolidations among energy producers and
oilfield service and equipment providers, an oversupply in the marketplace of
current-generation seismic equipment, a current industry-wide oversupply of
"spec" seismic data, pricing pressures from competitors and customers, and the
14
15
destabilized economies in many developing countries. Despite higher prices for
oil and natural gas since February 1999, it is expected that any turnaround for
the seismic equipment market will occur later than for other sectors of the
energy services industry.
It is impossible to predict the length of the downturn for the seismic
equipment market with any certainty. A further prolonged downturn in market
demand for products will have a material adverse effect on results of operations
and financial condition. No assurances can be given as to future levels of
worldwide oil and natural gas prices, the future level of activity in worldwide
oil and gas exploration and development and their relationship(s) to the demand
for products. Additionally, no assurances can be given that efforts to reduce
and contain costs will be sufficient to offset the effect of the expected
continued lower levels of net sales until industry conditions improve.
Loss of Significant Customers Will Adversely Affect the Company. A
relatively small number of customers have accounted for a large portion of net
sales, although the degree of sales concentration with any one customer has
varied from fiscal year to year. During the three months ended March 31, 2001,
four customers (Western Geco, Veritas DGC, Schlumberger, and Argas) accounted
for approximately 52% of net sales. The loss of any one of these customers could
have a material adverse effect on net sales, the results of operation and
financial condition of the Company.
Risk From Significant Amount of Foreign Sales Could Adversely Affect Results
of Operations. Sales outside the United States have historically accounted for a
significant part of the Company's net sales. Foreign sales are subject to
special risks inherent in doing business outside of the United States, including
the risk of war, civil disturbances, exchange rate fluctuations, embargo, and
government activities, as well as risks of compliance with additional laws,
including tariff regulations and import/export restrictions. U.S. technology
export restrictions may affect the types and specifications of products
exported. The Company may, from time to time, require export licenses and there
can be no assurance that the Company will not experience difficulty in obtaining
such licenses as required in connection with export sales.
Demand for products from customers in developing countries (including Russia
and other Former Soviet Union countries as well as certain Latin American and
Asian countries, including China) is difficult to predict and can fluctuate
significantly from year to year. These changes in demand result primarily from
the instability of economies and governments in certain developing countries,
changes in internal laws and policies affecting trade and investment, and
because those markets are only beginning to adopt new technologies and establish
purchasing practices. These risks may adversely affect future operating results
and the Company's financial position. In addition, sales to customers in
developing countries on extended terms present heightened credit risks for the
reasons discussed above.
The Company is required to convert to the Euro currency at its facility
located in one of the European Union member countries, and although the Company
does not currently anticipate any problems with such conversion, there can be no
assurance that the problems actually encountered in the Euro conversion will not
be more pervasive than those currently anticipated by management.
Dependence on Key and Technical Personnel. Future success depends upon the
continued contributions of personnel, particularly management personnel, many of
whom would be difficult to replace. Success will also depend on the Company's
ability to attract and retain skilled employees. Changes in personnel,
particularly technical personnel, could adversely affect operating results and
continued changes in management personnel could have a disruptive effect on
employees which could, in turn, adversely affect operating results.
Significant Payment Defaults under Sales Arrangements Could Adversely Affect
the Company. The Company sells to many customers on extended-term arrangements.
Significant payment defaults by customers could have a material adverse effect
on the Company's financial position and results of operations. A significant
portion of trade notes and accounts receivable balance as of March 31, 2001 was
attributable to sales made in the former Soviet Union, Latin American and Asian
countries.
Risks Related to Gross Profit. Gross profit percentage is a function of
pricing pressures from Company customers and competitors and the product mix
sold in any period. Increased sales of lower margin equipment and related
components in the overall sales mix may result in lower gross profit. Other
factors, such as heightened price competition, unit volumes, inventory
obsolescence, increased warranty costs and other product related contingencies,
changes in sales and distribution channels, shortages in components due to
untimely supplies or inability to obtain items at reasonable prices, as well as
unavailability of skilled labor and manufacturing under-absorption due to low
production volumes, may also continue to affect the cost of sales and result in
fluctuations of gross profit percentages in future periods and results of
operations.
Risks Related to Acquisitions. The Company may make further acquisitions in
the future. Acquisitions require significant financial and management resources
both at the time of the transaction and during the process of integrating the
newly acquired business into
15
16
current operations. Operating results could be adversely affected if the Company
is unable to successfully integrate newly acquired companies into operations.
Structural changes in internal organization, which may result from acquisitions,
may not always produce the desired financial or operational results.
Certain acquisitions or strategic transactions may be subject to approval by
the other party's shareholders, United States or foreign governmental agencies,
or other third parties. Accordingly, there is a risk that important acquisitions
or transactions could fail to conclude as planned. Future acquisitions could
also result in issuance of equity securities or the rights associated with the
equity securities, which could potentially dilute earnings per share. In
addition, future acquisitions could result in the incurrence of additional debt,
taxes, or contingent liabilities, and amortization expenses related to goodwill
and other intangible assets. These factors could adversely affect future
operating results and the Company's financial position.
Failure to Protect Intellectual Property Will Adversely Affect Operations.
The Company believes that technology is a primary basis of competition in the
industry. Although the Company currently holds certain intellectual property
rights relating to its product lines, there can be no assurance that these
rights will not be challenged by third parties or that the Company will obtain
additional patents or other intellectual property rights in the future.
Additionally, there can be no assurance that efforts to protect its trade
secrets will be successful or that others will not independently develop similar
products or design around any of the intellectual property rights owned by the
Company or that the Company will be precluded by others' patent claims.
Disruption in Vendor Supplies Will Affect Financial Results. The Company's
manufacturing process requires a high volume of quality components. Certain
components used by the Company are currently provided by only one supplier. The
Company may, from time to time, experience supply or quality control problems
with suppliers, and such problems could significantly affect the Company's
ability to meet production and sales commitments. Reliance on certain suppliers,
as well as industry supply conditions generally involve several risks, including
the possibility of a shortage or a lack of availability of key components and
increases in component costs and reduced control over delivery schedules; any of
which could adversely affect future financial results.
Risks Related to Government Regulations and Product Certification. The
Company's operations are subject to laws, regulations, government policies and
product certification requirements worldwide. Changes in such laws, regulations,
policies, or requirements could affect the demand for products or result in the
need to modify products, which may involve substantial costs or delays in sales
and could have an adverse effect on future operating results. Certain countries
are subject to restrictions, sanctions and embargoes imposed by the US
government. These restrictions, sanctions and embargoes prohibit or limit the
Company from participating in certain business activities in those countries.
These constraints may adversely affect opportunities for business in those
countries.
Risks Related to Timing of Product Shipments Could Result in Significant
Quarterly Fluctuations. Due to the relatively high sales price of many products
and relatively low unit sales volume, the timing in the shipment of systems and
the mix of products sold can produce fluctuations in quarter-to-quarter
financial performance. One of these factors, which may affect operating results
from time to time, is that a substantial portion of the Company's net sales in
any period may result from shipments during the latter part of a period. Because
the Company establishes its sales and operating expense levels based on
operational goals, if shipments in any period do not meet goals, net sales and
net earnings may be adversely affected.
Stock Volatility and Absence of Dividends May Adversely Affect Stock Price.
In recent years, the stock market in general, and the market for energy and
technology stocks in particular, including the Company's common stock, have
experienced extreme price fluctuations. There is a risk that future stock price
fluctuations could impact Company operations. Stock price declines could affect
the Company's ability to successfully attract and retain qualified personnel,
complete desirable business combinations or accomplish financing or similar
transactions in the future. The Company has historically not paid, and does not
intend to pay in the foreseeable future, cash dividends on common stock.
NOTE: THE FOREGOING REVIEW OF FACTORS PURSUANT TO THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 SHOULD NOT BE CONSTRUED AS EXHAUSTIVE. IN ADDITION
TO THE FOREGOING, THE COMPANY WISHES TO REFER READERS TO OTHER FACTORS DISCUSSED
ELSEWHERE IN THIS REPORT AS WELL AS OTHER FILINGS AND REPORTS WITH THE SEC FOR A
FURTHER DISCUSSION OF RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS. THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS
TO ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH MAY BE MADE TO REFLECT THE EVENTS
OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS.
16
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company may, from time to time, be exposed to market risk, which is the
potential loss arising from adverse changes in market prices and rates. The
Company traditionally has not entered into significant derivative or other
financial instruments. The Company is not currently a borrower under any
material credit arrangements which feature fluctuating interest rates. Market
risk could arise from changes in foreign currency exchange rates.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Documents Filed.
15.1 Acknowledgement Letter Regarding Unaudited Interim Financial
Information from KPMG LLP.
99.1 Independent Accountants' Review Report.
(b) Reports on Form 8-K.
On February 6, 2001, the Company filed a Current Report on Form 8-K
reporting under Item 9. Regulation FD Disclosure concerning the Company's
results of operations for the seven months ended December 31, 2000.
17
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Stafford, State of Texas, on May 11, 2001.
INPUT/OUTPUT, INC.
By /s/ TIMOTHY J. PROBERT
----------------------------------------
President & Chief Executive Officer
(principal executive officer)
19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
15.1 Acknowledgement Letter Regarding Unaudited Interim Financial
Information from KPMG LLP.
99.1 Independent Accountants' Review Report.